1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Irish government actively promotes FDI, a strategy that has fueled economic growth since the mid-1990s. The principal goal of Ireland’s investment promotion has been employment creation, especially in technology-intensive and high-skill industries. More recently, the government has focused on Ireland’s international competitiveness by encouraging foreign-owned companies to enhance research and development (R&D) activities and to deliver higher-value goods and services.
The Irish government’s actions have achieved considerable success in attracting U.S. investment in particular. The stock of American FDI in Ireland stood at USD 446 billion in 2017, more than the U.S. total for China, India, Russia, Brazil, and South Africa (the so-called BRICS countries) combined. There are approximately 700 U.S. subsidiaries currently in Ireland employing roughly 155,000 people and supporting work for another 100,000. This figure represents a significant proportion of the 2.28 million people employed in Ireland. U.S. firms operate primarily in the following sectors: chemicals, bio-pharmaceuticals and medical devices, computer hardware and software, electronics, and financial services.
U.S. investment has been particularly important to the growth and modernization of Irish industry over the past 25 years, providing new technology, export capabilities, management and manufacturing best practices, and employment opportunities. The activities of U.S. firms in Ireland span from the manufacturing of high-tech electronics, computer products, medical devices, and pharmaceuticals to retailing, banking, finance, and other services. More recently, Ireland has also become an important R&D center for U.S. firms in Europe, and a magnet for U.S. internet/digital media investment. Industry leaders like Google, Amazon, eBay, PayPal, Facebook, Twitter, LinkedIn, and Electronic Arts use Ireland as the hub or important part of their respective European, and sometimes Middle Eastern, African, and/or Indian operations.
U.S. companies are attracted to Ireland as an exporting sales and support platform to the EU market of 500 million consumers and other global markets, mainly the Middle East and Africa. Ireland is a successful FDI destination for many reasons, including a corporate tax rate of 12.5 percent for all domestic and foreign firms; a well-educated, English-speaking workforce; the availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators. Ireland also benefits from a transparent judicial system; good transportation links; proximity to the United States and Europe, and the drawing power of existing companies operating successfully in Ireland (a so-called “clustering” effect).
Conversely, factors that negatively affect Ireland’s ability to attract investment include high labor and operating costs (such as for energy) costs; sporadic skilled-labor shortages; residual fallout from Ireland’s economic and financial restructuring; and sometimes-deficient infrastructure (such as in transportation, energy and broadband quality). Ireland also suffers from housing and high-quality office space shortages; uncertainty in EU policies on some regulatory matters; and absolute price levels that are among the highest in Europe. Some Irish government agencies have in the past expressed concern that energy costs and the reliability of energy supply also could undermine Ireland’s attractiveness as a FDI destination. The American Chamber of Commerce in Ireland has noted the need for greater attention to a “skills gap” in the supply of Irish graduates to the high technology sector. It also has asserted that high personal income tax rates can make attracting talent from abroad difficult.
In 2013, Ireland became the first country in the Eurozone to exit the EU, European Central Bank, and International Monetary Fund (EU/ECB/IMF, or so-called Troika) bailout program. Compliance with the terms of the Troika program came at a substantial economic cost with gross domestic product (GDP) stagnation, austerity measures, and high unemployment (15 percent). The economy has since recovered and has been the fastest growing Eurozone economy for the past five years, with a growth rate of 6 percent in 2018. Meanwhile, government initiatives to attract investment have continued to stimulate job creation and employment. As a result, unemployment levels have fallen dramatically and the Central Bank of Ireland forecasts that Ireland’s unemployment rate will fall to 4.9 percent in 2019. Against this good economic background, there is a resurgent interest in Ireland as an investment destination. Since exiting the bailout program, the Irish government has successfully returned to international sovereign debt markets, and successful bonds sales exemplify renewed international confidence in Ireland’s recovery.
Brexit and its Implications for Ireland
The UK’s exit from the EU will leave Ireland as the only remaining English-speaking country in the bloc. Ireland is the only EU country to share a land border with the UK. It is still unclear what the full economic consequences of Brexit will be for Ireland as it loses a close EU ally on policy matters. Econometric models from the Irish Department of Finance and from the Central Bank of Ireland suggest Brexit will cut economic growth modestly in the near term. Ireland is heavily dependent on the UK as an export market, especially for food products, and sectors such as food and agri-business may be hardest hit. Ireland also sources many imports from the UK, which could raise costs if supply chains are disrupted. A number of UK-based firms (including US firms) have moved headquarters or opened subsidiary offices in Ireland to facilitate ease of business with other EU countries.
Six government departments and organizations have responsibility to promote investment into Ireland by foreign companies:
- The Industrial Development Authority of Ireland (IDA Ireland) has overall responsibility for promoting and facilitating FDI in all areas of the country, except in the Shannon Free Zone (see below). IDA Ireland is also responsible for attracting foreign financial and insurance firms to Dublin’s International Financial Services Center (IFSC). IDA Ireland maintains seven U.S. offices (in New York, NY; Boston, MA; Chicago, IL; Mountain View, CA; Irvine, CA; Atlanta, GA; and Austin, TX), as well as offices throughout Europe and Asia.
- Enterprise Ireland (EI) promotes joint ventures and strategic alliances between indigenous and foreign companies. The agency also assists foreign firms that wish to establish food and drink manufacturing operations in Ireland. EI has five offices in the United States (New York, NY; Austin, TX; Boston, MA; Chicago, IL; and Mountain View, CA), as well as offices in Europe, South America, the Middle East, and Asia.
- Shannon Group (formerly the Shannon Free Airport Development Company) promotes FDI in the Shannon Free Zone (see description below) and owns properties in the Shannon region as potential green-field investment sites. Since 2006 and the Industrial Development Amendments Act, EI assumed responsibility for investment by Irish firms in the Shannon region. IDA Ireland remains responsible for FDI in the Shannon region outside the Shannon Free Zone.
- Udaras na Gaeltachta (Udaras) has responsibility for economic development in those areas of Ireland where the predominant language is Irish, and works with IDA Ireland to promote overseas investment in these regions.
- Department of Foreign Affairs and Trade (DFAT) has responsibility for economic messaging and supporting the country’s trade promotion agenda as well as diaspora engagement to attract investment.
- Department of Business, Enterprise and Innovation (DBEI) supports the creation of good jobs by promoting the development of a competitive business environment in which enterprises will operate with high standards and grow in sustainable markets.
Limits on Foreign Control and Right to Private Ownership and Establishment
Irish law allows foreign corporations (registered under the Companies Act 2014 or previous legislation and known locally as a public limited company, or plc for short) to conduct business in Ireland. Any company incorporated abroad that establishes a branch in Ireland must file certain papers with the Registrar of Companies. A foreign corporation with a branch in Ireland will have the same standing in Irish law for purposes of contracts, etc., as a domestic company incorporated in Ireland. Private businesses are not competitively disadvantaged to public enterprises with respect to access to markets, credit, and other business operations.
No barriers exist to participation by foreign entities in the purchase of state-owned Irish companies. Residents of Ireland may, however, be given priority in share allocations over all other investors. In 1998, the Irish government sold the state-owned telecommunications company Eircom, and Irish residents received priority in share allocations. In 2005, the Government privatized the national airline Aer Lingus through a stock market flotation, but it chose to retain about a one-quarter stake. U.S. investors purchased shares during its privatization. In 2015, the International Airlines Group (IAG) purchased the Government’s remaining stake in the airline.
Citizens of countries other than Ireland and EU member states can acquire land for private residential or industrial purposes. Under Section 45 of the Land Act, 1965, all non-EU nationals must obtain the written consent of the Land Commission before acquiring an interest in land zoned for agricultural use. There are many equine stud farms and racing facilities owned by foreign nationals. No restrictions exist on the acquisition of urban land.
Ireland does not have formal investment screening legislation, but as an EU member it may need to implement any future common EU investment screening regulations/directives.
Other Investment Policy Reviews
The Economist Intelligence Unit and World Bank’s Doing Business 2019 provide current information on Ireland’s investment policies.
All firms must register with the Companies Registration Office (www.cro.ie). As well as registering companies, the CRO also can register a business/trading name, a non-Ireland based foreign company (external company), or a limited partnership. A firm or company registered under the Companies Act 2014 becomes a body corporate as and from the date mentioned in its certificate of incorporation. The website permits online data submission. Firms must submit a signed paper copy of this online application to the CRO, unless the applicant company has already registered with www.revenue.ie (the website of Ireland’s tax collecting authority, the Office of the Revenue Commissioners).
Enterprise Ireland assists Irish firms in developing partnerships with foreign firms mainly to develop and grow indigenous firms.
4. Industrial Policies
Three Irish organizations – IDA Ireland, Enterprise Ireland, and Udaras – currently have regulatory authority for administering grant aid to investors for capital equipment, land, buildings, training, and R&D. Foreign and domestic business enterprises that seek grant aid from these organizations must submit investment proposals. Typically, these proposals include information on fixed assets (capital), labor, and technology/R&D components, and establish targets using criteria such as sales, profitability, exports, and employment. These organizations treat this information in confidence, and each investment proposal is subject to an economic appraisal before they offer support.
The state investment agencies and foreign investors establish employment creation targets, which usually serve as the basis for performance requirements. The agencies only pay grant aid after the foreign investors have attained externally audited performance targets. Grant agreements generally have a repayment term of five years after the date on which the last grant is paid. Parent companies typically must also guarantee repayment of the government grant if the company closes before an agreed period of time elapses, normally ten years after the grant was paid. There are no requirements that foreign investors procure locally or allow nationals to own shares.
The current EU Regional Aid Guidelines (RAGs) that apply to Ireland operate until 2020. The RAGs govern the maximum grant aid the Irish government can provide to firms/businesses, which depends on their location. The differences in the aid ceilings reflect the less developed status of business/infrastructure in regions outside the greater Dublin area.
While investors are free, subject to planning permission, to choose the location of their investment, IDA Ireland has actively encouraged investment in regions outside Dublin since the 1990s. Investment regionalization became Irish government policy in 2001, officially seeking to spread investment more evenly around the country. The IDA’s current strategy targets locating over 50 percent of all new FDI investments outside the two main urban centers of Dublin and Cork. To encourage the location of firms outside Dublin, IDA Ireland has developed “magnets of attraction,” providing cluster areas of activity around the country. IDA Ireland also has supported construction of business parks in counties Galway and Louth for the biotechnology sector.
There are no restrictions, de jure or de facto, on participation by foreign firms in government-financed and/or -subsidized R&D programs on a national basis. In fact, the government strongly encourages and incentivizes (via a partial tax break) foreign companies to conduct R&D as part of a national strategy to build a more knowledge-intensive, innovation-based economy. Science Foundation Ireland (SFI), the state science agency, has been responsible for administering Ireland’s R&D funding since 2000. Under its current strategy, SFI is investing over USD 200 million annually in R&D activities. It is targeting leading researchers in Ireland and overseas to promote the development of biotechnology, information and communications technology, and energy, as well as complementary worker skills.
The U.S.-Ireland Research and Development Partnership, launched in July 2006, is a unique initiative involving funding agencies across three jurisdictions: the United States, Ireland, and Northern Ireland (NI). Under the program, a ‘single-proposal, single-review’ mechanism is facilitated by the National Science Foundation (NSF) and National Institutes of Health (NIH) in the United States, which accept submissions from tri-jurisdictional (U.S., Ireland, and NI) teams for existing funding programs. All proposals submitted under the auspices of the Partnership must have significant research involvement from researchers in all three jurisdictions. In 2015, the program was expanded to include agricultural research topics.
A key aspect of government support is a flexible 25 percent tax credit on the cost of eligible research, development, and innovation (RDI) activity and of any building with a 35 percent RDI activity level over four years. A number of U.S. firms have already used these tax credits to build and operate R&D facilities. In addition, the Government in 2016 introduced the Knowledge Development Box (KDB), which offers a lower tax rate for certain R&D activities carried out in Ireland.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Government established Shannon duty-free Processing Zone (SDFPZ) under legislation in 1957. At that time, companies operating in the area were entitled to a number of taxation and duty-free benefits not available elsewhere in Ireland.
All firms operating in the area, now called the Shannon Free Zone, have the same investment opportunities and tax incentives as indigenous Irish companies. There are more than 150 companies operating within the 254-hectare business park. These include the following U.S. companies: Benex (Becton Dickinson), Connor-Winfield, Digital River, Enterasys Networks, Extrude Hone, GE Capital Aviation Services, GE Money, Sensing, Genworth Financial, Intel, Illinois Tool Works, Kwik-Lok, Lawrence Laboratories (Bristol Myers Squibb), Le Bas International, Magellan Aviation Services, Maidenform, Melcut Cutting Tools (SGS Carbide Tools), Mentor Graphics, Molex, Phoenix American Financial Services, RSA Security, Shannon Engine Support (CFM International), SPS International/Hi-Life Tools (Precision Castparts Corp), Sykes Enterprises, Symantec, Travelsavers Corp, Viking Pump, Western Well Tool, Xerox, and Zimmer. The Shannon Group currently operates the SDFPZ, as well as Shannon Airport.
Performance and Data Localization Requirements
Visa, residence, and work permit procedures for foreign investors are non-discriminatory and, for U.S. citizens (as investors or employees), generally liberal. No restrictions exist on the numbers and duration of employment of foreign managers brought in to supervise foreign investment projects, though they must renew work permits annually. There are no discriminatory export policies or import policies affecting foreign investors.
The Government does not follow forced localization nor does it require foreign IT providers to turn over source code and/or provide access to surveillance (e.g., backdoors into hardware and software, or encryption keys). There are no rules on maintaining minimum amounts of data storage in Ireland.